Buying a property for your child at university

by Morag Lyall

Parents with children that are going off to university might want to think about their own potential property investment options now that the kids are away.

Second-year students are often required to find their own accommodation, as halls of residences at universities are usually allocated to first-years only.

However, with more students than ever applying for university, halls are filling up and it might be a sensible option to buy a property in their first year, even if they are allocated a college room.

According to figures from UCAS, the number of students applying for university has hit a record high for the fourth year running.

For the coming 2010-11 intake, there were 570,556 applicants, a rise of 22.9 per cent on 2009.

And as the exam period is ending, Chiara Cavaglieri from The Independent advised potential parent landlords that now could be the time to find a property for the new academic year, as at least half of the students will already have their eye on accommodation for next year.

Ms Cavaglieri claimed that student housing is a "fairly resilient venture", which has "considerable benefits".

One main benefit, she said, was that regular residential landlords with a leasehold property portfolio are reluctant to rent out to students.

This means that there is a shortage of properties available for students and your child.

A lack of supply has driven the price up, resulting in some areas that have seen a student rent increase of 19 per cent over the past five years.

Simon Thompson, co-founder and director of Accommodation for Students, told the newspaper: "As young adults move away to university or enter their second year, many parents use the opportunity to purchase a second property, safe in the knowledge that they have tenants lined up to pay the rent.

"For those who can afford it, it is a way potentially to profit from an otherwise expensive experience."

Ms Cavaglieri added that properties in Cambridge and Oxford are rarely left unattended during the summer months.

However, she warned that financing a buy-to-let property for a child can have complications.

Next week chancellor George Osborne will announce his emergency Budget, which could have an affect on how easily it is to finance this venture.

He has already confirmed that the Bank of England will have control over restricting financial institutions in their lending volumes.

But more concerning is the rise in capital gains tax (CGT) for property investors.

On June 22nd landlords will find out if the tax will indeed rise to 40 per cent in line with income tax.

Although, as David Hollingworth from broker London & Country told the Independent, investing in property is not a short-term venture, so CGT could have little effect now.

One way to avoid CGT could be to put the property in your child's name, said Ms Cavaglieri.

"The rent-a-room scheme allows your child to rent out a room and earn up to £4,250 per year tax-free, as long as communal spaces such as kitchen and bathroom are shared."

She also noted the additional costs that a landlord must take on: gas and electricity safety certificates, landlords' insurance, and the houses in multiple occupation licence.

However, some of these, including tenancy agreements, can be obtained through Lawpack, which would eliminate expensive solicitors' fees.

As for your child, they can benefit from a student property investment as they will not have to deal with external landlords and they could look to take on the mortgage when they can afford it.

Ray Boulger, senior technical manager at mortgage adviser John Charcol, commented that it is now "slightly easier" for first-time buyers to get a mortgage.

To get a better understanding about making a property investment for your child, Lawpack's guide, Property Investment for your Children, provides a helpful insight into everything you need to know.

Published on: June 21, 2010

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